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9/20/08

Quote of the day goes to Evo Morales while accepting his honourary doctorate at the National University of Panama last night.

"Is is so difficult for some families to understand that we all have the same rights and the same duties?"

Well, obviously it is difficult. In a press conference held last Sunday an organization called the Coordinator of Santa Cruz Ethnic Peoples (CPESC) reported that on Thursday September 11th, while the the massacre of Pando was in full swing, a group of racist scum attacked their central offices in the city of Santa Cruz. Once they had stolen all they could, they returned the night of the 12th and set about destroying the contents and the building itself. This is what was left after two days of their handiwork.

It begs the question: How can an organized group of vandals spend hours doing this to a building in a large city without the intervention of local authorities and the police force? Also, in the press release, the ringleaders of the attack are clearly named but not one has even been questioned by the Santa Cruz authorities, let alone arrested. If ever you needed proof of the complete ignorance of the rule of law and total disrespect of democracy in Santa Cruz, this is it.

NOBS stands for 'No B.S.' (and if you have to ask what B.S. stands for you're at the wrong website). NOBS is a bespoke analysis service aimed at the individual investor. NOBS is designed to target junior or exploration mining companies, as this is sector that is mostly covered on site. However, be clear that NOBS can be ordered for any company in any sector.

How it worksYou write to me ordering a report on the company of choice. I then prepare a bespoke NOBS report which is delivered in 24/48 hours (or 72 hours absolute max if I'm busy on other things, and I'll warn you if there's such a delay beforehand) in PDF format. You can expect the report to be around 4 or 5 pages long and include (assuming as example a junior miner):

1) An overview of the company, its operations and its share structure2) Details of its projects, including my impressions and views on its main operation or flagship project.3) Details on management and key personnel, including my impressions and views.4) A look at the key points of the company's financial reports, which point out actual and future strengths/weaknesses of the company's finances.5) A conclusion that sums up the pros and cons of the company and my interpretations, including a balanced, personal decision on whether the current share price represents value.

At around four or five pages of A4 size, the NOBS report will be short but concise and packed with relevant details and the opinions of someone who examines companies for a living (i.e. me). But be clear that you will not get an exhaustive, full-scale analysis including reports of on-site visits, detailed biographies of management, line-by-line breakdown of balance sheet filings etc. That kind of extensive report comes at a much higher cost and isn't the concept in mind here (though enquiries are also welcome for extensive reports).

CostAs this kind of report should take me around four or five hours of research and writing I'm setting the price at U$100, payable via Paypal or Western Union transfer (whichever is more convenient for you, and you get to find out my real name and where I live if you pay via WU). The price is set low (around U$20/h of my time) because I want this service to be accessible to the private investor, but it does come with a price tag because I'd like this website to start generating income and to pay for itself. So the hundred dollar price tag is a personal compromise. If you ask, I'd suspect that a discount for multiple orders is available.

Example CopyLinked here is an example of a NOBS report. It's a real live example that I've put together on the junior miner Andina Minerals (ADM.v) and it's the free giveaway that allows you to see what the service can offer you. Please enjoy this complimentary copy and feel free to pass on to other people. Here is the link again.

So for firm orders, further details on NOBS and any questions answered on the service feel free to contact me at:

otto.rock1 (AT) gmail (DOT) com

You won't find a pushy salesperson who starts peppering you with "why haven't you taken me up on this yet?" if you write an enquiry mail. You will find someone who knows the business but also has a relaxed attitude to life.

The Mex Files has written a book that's (and I quote)"destined to become a classic". To borrow from the blurb, "The first general history of Mexico to be published in English in nearly thirty years, Richard Grabman's Gods, Gachupines and Gringos is one of the only Mexican histories ever written with the general reader in mind."Here's the link to find out more and (hopefully) order your copy.

Memory in Latin America put me to shame this week. One of the most important acts of memorial in the whole region (and one I used to commemorate) is "The Night of the Pencils". I forgot to mention it. Lillie has two or three posts on 'Lapices' that explain everything.

At the Biiwii blog, Gary has been doing a great job keeping us informed about the Paulson Bernanke toxic sludgefest. This site is highly recommended for those who want an intelligent and balanced view on investments and trading.

Da Borev has been doing a far better job of following the Antonini suitcase trail in Miami than I have. Here's the latest installment which gets us nicely up to date (with the snark we lurve).

I'd been wondering where South-South Cooperation had disappeared to; it turns out he was ocean-hopping and is now on the other side of The Pacific. Doing a nice job, too, and noting good stories that affect the LatAm/China trade relationship. Nice to have you back, Benito.

Abiding in Bolivia has noted the same as here; Reuters is doing a good job of covering Bolivian issues. He also stands up and applauds IPS for its coverage.

More Ecuador: Even though Copper Mesa (CUX.to) has been given back its two concessions today, avoid this piece of crap company like the plague. This is the same entity that used to be called Ascendant Copper and used thuggery to try and beat locals into submission around its Ecuador copper project. Hell will freeze over the day these crooks build a mine in Ecuador and these people deserve jail, not your money buying their shares.

Venezuela: Two interesting stories from Bloomberg today. The first one details how Moody's is likely to raise the country's debt rating (from "fairly crap" to "only half crap", but it's the right direction I suppose). The second one reports on the signing ceremony between Hugo and international oil companies today. Special mention was made of the words Hugo had for Chevron (CVX), the only US oil company in on the deal. Chávez said, "To the directors of Chevron, to businessmen from the United States, the only aspiration we have is that you respect us. Thank you for your presence.'' Not a quote likely to find its way into The Miami Herald tomorrow. But perhaps the most interesting was the reporter on that story, Matthew Walter. Would the touchyfeelyness of the report have anything to do with the extended time Bloomberg New York has been spending on this very blog today looking at very recent posts about Matthew? I think we should be told!

Argentina: Klishtina Fernandesh de Kirchner hash...sorry..has been invited to ring the NASDAQ bell next week (she's in New York for the UN bash of course), but the greedy vultures from ATFA want the invite to be rescinded. These people have gone from a threat to a joke in the space of two years and have no chance of getting paid out on their PR scam.

Bolivia: In a show of strength that says "Get the Message, dumbasses", Bolivian miners today staged a march in Cochabamba to support their prez, Doctor Morales. To make sure they had the medialuna scum's attention they all marched holding a stick of dynamite.

Evo has moved up a gear and suddenly has the air of a statesman about him. Yesterday he sat down with the rebel prefects and, in a closed door session of negotiations, put forward ideas on how to heal the wounds recently caused. It's clear that this one won't be solved in a day or even a week, but the fact that the two sides can sit round a table for a few hours and talk in a civil manner is good enough for the moment.

Evo then says, "Oops, gotta fly", waves a cheery goodbye to the racist scum and does just that. Right now he's in Panamá meeting with President Martin Torrijos (I preferred his father, but WTFDIKA?) and picking up an honourary Doctorate from Panamá's National University. So from now on you can choose to call the dude Your Excellency, Mr. President, Doctor, or whatever other formal greeting you prefer. I get the sneaking feeling he still likes "cumpa" the most.

PCU is my star player, up 11% on wickedly good volume. I missed FCX for sure, but no tears here.....getting richer by the minute. Spot copper back at $3.20 and a real rollercoaster ride, though I'm glad to say it's pulling Zn up with it.

Am I buying today? You must be joking! This is a BS euphoria rally tailor-made for the CNBC market chasers. If there's something the US Gestapo forget to ban shorts on, I might take a contrary position in something come Monday or Tuesday.But that's really in the "might" column, nowhere near the "will" column. I am very happy to sit in cash.

Plenty of relief rallies in progress. Choosing just one, the Bovespa (+7.44%) is mustard, and Petrobras is leading (+17%) the charge there. The world is not coming to an end...got it yet?

Why are idiot goldbugs shouting "I told you so" and touting for subscription sheep today? Told you that one, too. The Kitco dot com articles section is just mindnumbingly unreadable today unless you have a warped sense of humour*.

"However, this time ArgyBizDude might have to lump it. Word is that Martin Redrado, anglophile and big cheese at the Argentine Central Bank (BCRA) is pushing los Kirchner to finally...FINALLY allow the peso to revalue. In off-the-record-third-party gossip (that's from a normally pretty accurate source), Redrado is reported to have said to his inner circle that the weak Peso has had its day and that monetary policy must be changed to attack inflation."

Yesterday, things suddenly moved forward on this issue. Wife of the leader of Argentina, Klishtina Fernandesh de Kirchner, said this:

"A very high exchange rate (i.e. a weak Peso) is inconsistent with anti-inflation policy."

That, dear reader, is a big shift in official rhetoric. It means that Los Kirchner have

1) Listened to Martin Redrado2) Listened to reason3) Finally learned a bit about basic economics. It took 'em five years, but better late than never I suppose....

But the real jawdropper hit my screen this morning, because the President of Fiat Argentina, Cristiano Rattazzi, said the following referring to the above remarks:

"The President made a tremedously sensible and logical speech. Often things are done that are inconsistent with the medium-term and are simply good for today."

If you know about the Argentine business scene, that one is a knock-down statement. Along with the cereal producers, the auto industry has been the loudest voice all this time for keeping the weak Peso. This simply because their exports (mainly to Brazil) have been greatly benefitted from this policy. This therefore means that:

1) The auto industry now sees inflation as its biggest problem, too2) Los Kirchner have had a quiet word in the ear of the auto people and have told them to get ready for the change and to support it (I'm not joking on this one...that's how Argentina works)3) The big move to a stronger Peso is just around the corner.

A stronger peso will also give the Kirchners sweet revenge against the troublesome agro boyz, it must be remembered. That'll be even more reason for the country to let the Peso appreciate! Otto therefore goes on record and says, "Buy the Argentine Peso, with an initial target of P$2.80 to the dollar and a 10% profit coming to you very soon."

When there's a sudden rush for the door, the flight to quality is to the T-Bill, the T-Bill and then the T-Bill. Under nearly all circumstances is has the market breadth to be able to soak up countless zillions of dollars at any given moment. But when nerves turn to outright panic and there's a overwhelming demand for the 3 month T-Bill, it's like 25 fat guys trying to squeeze through the same door at the same time. The result is that flight to quality money can't get parked in the T-Bill quickly enough the yield drops and drops and drops and the fat money looks for an alterative place to hide.

That alternative is gold. To the utter chagrin of the goldbugs, it has to be said that gold is very much second choice as a safety buy and is only used in extremis situation like mid March and Wednesday 17th (two days ago). The plain vanilla fact of the matter is that the gold market is too small to be able to efficiently carry the amount of money that moves around the world market. We saw that Wednesday when the sudden overwhelming demand for gold made it spike the hardest since 1999. It wasn't the end of the fiat dollar or any other such nonsense dreamed up by the tinfoil hatters, it was "just" an extreme case of more buyers than sellers.

Therefore it makes plenty of sense to watch the yield in the three month T-Bill tomorrow. If the yield rises it means there is plenty of room for any frightened money to go and hide there. Therefore it won't be needing gold. If the 3 month yield drops even closer to zero then the panic is on again and we can expect gold to react accordingly.

9/18/08

This morning a friend mailed me an extract from newsletter writer Steve Saville's report dated September 17th 2008 to ask my opinion. The company he was writing about was Andina Minerals (ADM.v). I considered reporting on his thoughts here, but although Saville clearly states his copyright principle in the newsletter I've decided to quote verbatim a single section of his more extensive section on ADM.v because it's necessary to see what he wrote. I stress that I do not take this kind of copypasting lightly (this is also why I decided not to write on the subject until after the bell today) and there is plenty more written by Saville on ADM.v in his report so it's necessary to see the whole context, but my particular issues are based around this section that says:

ADM has close to 10M ounces of in-ground gold in a single deposit in a politically secure location

( Chile ). And at its current share price this gold is being valued at only US$8/ounce. If we weren't seeing it with our own eyes we would not believe that it would be possible for such a large and high-quality gold deposit to achieve such a low valuation.

The reason I have issues with this is that it's a crock, and somebody like Saville has to be better than this. He has gathered a large following around him, he has skin in the game, and by the looks of the market action today those of his flock that waded in on his advice at the bell got well and truly stung. Here's the share price action from the last two days....

(click to enlarge)

..... and note the big volume spikes this morning. Those people are now 15% to 20% in the hole. So let's take a point-by-point look at what I believe is wrong with Saville's assessment of Andina Minerals.

1) Basic point. Right now, ADM does not have close to ten million ounces of in ground gold. It has a 6.6m oz measured and indicated (M+I) gold resource and 2.8 oz Au inferred. That's a zillion miles away from "having 10m oz". This is so basic it hurts, and anyone who read Mickey Fulp's article from a couple of weeks ago now knows that a "resource" is not the equivalent of "having gold". Especially when a large chunk of that is an inferred resource. This is just plain bad analysis from Saville...sorry, no way around that conclusion.

2) Point one means that even being generous with calculations and allowing the M+I to be used for valuations, we can only take 6.6m oz for our calculations. Period. No arguments. I clearly repeat; inferred resources are not things you can bank on, otherwise why spend all that cash on drilling?

3) Next point. Saville says ADM has X amount of "in ground gold". What he doesn't mention is that the metallurgy tests performed by the company indicate that at the 6.6moz cutoff grade they can only recover 67% of the gold from the rock (that's the 43-101 report for Volcan, not my guessing). That means the 6.6m oz of contained gold is really 4.42m oz of potentially (repeat potentially) economic gold.

4) Saville claims that the in situ gold is priced at a miserly $8/oz at present. This is not the case

ADM.v has 79.3m shares outstanding (and around 8.5m extra in options and warrants).

At last night's close, ADM.v was priced at $1.10.

I will assume for convenience that C$1=U$1

Therefore the 4.42m oz of M+I gold at Volcan (as outlined in point three) is valued at $19.73 using the shares out number (and $21.85 using the fully diluted number). You may consider that cheap for gold in situ, but all the same both sets of figures are a long way from Saville's $8 confection.

5) Next point. Saville calls it a "high quality gold deposit". High quality compared to what? It's a low grading deposit and a lot of the gold is at depth as this schematic of the deposit shows.

source: ADM Sept '08 presentation (click to enlarge)

As you can see it's "vertical" in shape which probably means a higher strip rate and therefore higher production costs than other open cast mines, such as Yanacocha in Peru (which is admittedly much larger, but the principle is the same).

6) As for those low grades, the 6.6m oz M+I figure is calculated at 0.85g/t gold with a 0.5g/t cutoff grade. That's open cast mining grades and not underground potential...not even close. As an example off the top of my head, at Fruta del Norte Aurelian averages grade of 7.23g/t and the lions share of the deposit is at 19g/t. That's a real "high quality deposit". This means that a lot of rock has to be processed to get a decent output of gold, and that means a big production facility has to be built there. That means serious capex would need to be spent to turn the Volcan project into a mine.

7) Talking of money, the company currently has around U$20m at bank ($22.27m as at 2q08 report dated 30th June). However, the next phase of exploration (phase V) is estimated to cost $17.5m and then the deposit will still be at M+I resource stage, nowhere near anything proven economic. This from company filings:

Andina is considering a budget of US$17.5 million for the Phase V exploration campaign at its Volcan Gold Project. The Phase V program would include approximately 35,000 meters of drilling to upgrade the quality of the resources, i.e. Inferred to Indicated and Measured Resource categories, and continue to outline and increase the gold resource in the Dorado Zones. Two thousand (2,000) meters of drilling is planned to delineate the extent of the sulphur resource in the area of the historical sulphur workings.

That will make quick work of the cash at bank, people. So once the 2008/2009 program is done, you can bet your tush there's a dilutive placement in the works.

8) With luck, after the 08/09 drill program ADM will be able to move that inferred resource into the M+I resource column, perhaps expand the deposit and therefore cancel out the negatives that will come from share dilution. Perhaps. But this thing no slam dunk...not at all.

ConclusionAt the $1.10 of yesterday and the $1.03 close today, ADM.v is probably cheap, yep. Even my twenty bucks an ounce in situ for its gold sure looks cheap, doesn't it? The thing is always ask is "why are these things cheap?" cos there tends to be good reasons for everything, even in this crazy market. For me, here, it's the low grades, the early stage of resource definition and the big, big capex that would be needed to get the big machine built on top if it ever gets to construction stage.

The geographical area is difficult, too. It's between 4,300masl and 5,200masl, with the average at 4,800masl. I know what 5,000masl feels like and it's not the kind of place you can expect to work witout interruption. Winds get life-threateningly high at that altitude in the Cordillera, and construction work will take a lot longer than something at, say, 2,500masl.

The bottom line is that Volcan will be expensive to turn into a mine. No doubts. That brings down the price at which the junior can sell its in situ ounces. No doubts. It also calls into question whether it will ever become a mine. So with lower selling price on the one hand, and a heavyweight newsletter writer with a big following and (probably) skin in the game like Saville massaging the numbers to get to $8/oz valuation on the other, I can't help but see red flags.

I'm not a subscriber to Saville, and this is one of the few times I've ever read the guy. However I do know that he has a good reputation in the newsletter world, and reputations like that tend to be deserved. But there no way round the conclusion that Saville is making ADM at Volcan out to be something that it isn't. I'd like to know why.

Remember this story yesterday when Bloomberg Venezuela tried to make the market panic about the Bolivar Fuerte (VEF) currency and how it was going to hell and how we were all gonna die and stuff, and how your truth-seeking Otto showed how they covered up their crappy analysis?

Well today the VEF strengthened from 4.80 to 4.35 versus the dollar, a simply enormous move for a currency of 9.375% in a single day. Here's the chart, and you'll be amazed to find out that.......

.......Bloomberg decided not to make a big song and dance about this. I wonder why? So this next picture is dedicated to you, Matthew Walter.

Credit where credit is due. Amongst the total dross reporting of mainstream media outlets, the coverage offered by Reuters over the events in Bolivia has been the shining exception. In this latest report, Reuters man-on-the-spot Eduardo Garcia (a man injured in a car accident in Bolivia last year that killed one of his colleagues) neatly captures what's really been happening and slaps down the ridiculously poor analysis offered by CNN, AP, Bloomberg and all the others in recent days.

At least 17 people were killed last week as anti-Morales protesters stormed government buildings, sabotaged natural gas pipelines and battled with the president's supporters in four opposition-controlled regions.

He ordered martial law in the remote Amazon province of Pando and arrested the governor there, accusing him of ordering a massacre of peasants last Thursday.

But soldiers showed restraint, taking a hands-off approach at times to avert confrontation. And South American presidents strongly backed Morales at an emergency summit this week, condemning any coup attempts or separatist rebellions CONTINUES HERE

Yes indeedy folks, it's miner's relief rally day and I'm on the sidelines! But I'm going to kick off with one junior I still own and that's made great progress in the last two days

Fortuna Silver (FVI.v) has upped 33.75% in less than 48 hours, and "oh fer gawd's sake..at LAST" is all I feel like shouting.

Be clear: FVI.v is a stock I recommend as a buy without a moment's hesitation. More background linked here and usual disclosures apply.

Jaguar Mining (JAG) lagged the other goldies in yesterday's bounce but is making up for lost time today. Up 14%, but volumes still not very strong.

Andina Minerals (ADM.v) rose bigtime on very strong volume at the bell but has since dropped back. Now at $1.12 and up 2% on the day. Steve Saville recommended this in his latest newsletter, but I'm going to lock horns with a bigboy newsletter writer here. I do not agree with what he said and will go into more detail in a post after the bell today.

Minera Andes (MAI.to) up another 12% at $1.14, and all I can say is w00t w00t w00t. Still amazingly cheap, and check out previous posts here on the San José copper project to find out why.

But it's not all Latino bliss today, as the Bovespa and Merval indices prove. Both are dropping even further today after yesterday's heavy selling. FWIW I think the selling overdone, but I'm not catching any falling knives in the banks, retailers, telcos etc etc. No way José. I'll keep sitting on the cash. Gambling is for others; I like the fish-in-dry-barrels opportunities that come after the top'n'bottom callers get lucky.

Colombia gets to wave its flag in New York this morning, as Ecopetrol (EC) begins open trading as an ADR. The ADR issue is 20 million shares, each one of which representing 20 shares (so if you like, Ecopetrol has put 400m of the shares it trades on the BVC into the US market).

For your information, the new ticker symbol for US trading is "EC".

A pity about the timing, because a new emerging market issue is unlikely to get them queuing at the door right now, but it is good to see a new opportunity for world investors to take a stake in Latin America. Particularly true for Colombia, as up to now the only ADR option available for the country has been Bancolombia (CIB).

The best thing is that my capital is being preserved (and that was always the idea).

The worst thing is that now we have to suffer the zero-sum-gain crew of amateurs collectively known as the "goldbugs" who'll crow and preen and explain to the world just how right they are. The same people who called "buy gold" at $1000, $950, $900 then $850 then $800 and then $750 will ignore all the other calls and shout "I called gold a buy at $750, you need to sign up for my newsletter."

Goldbugs give serious investors with gold a bad name. One more time and for the record; the amount of people who "get rich" by investing in gold can be counted on the fingers of one hand. Gold is not a medium for getting rich. It's a medium for staying unpoor, and that's exactly what you need in times like these.

But it seems Bloomberg's bad financial journalism is Sans Frontieres. Today it was Venezuela's turn to get the Bloomie hack treatment, and here we go with the details.

Not content with financial chaos in the USA, Bloomberg today decided to make up shit about Venezuela's currency and try to cause panic in Caracas, it seems. The story in question hit the wires at midday and came with the title Venezuelan Bolivar Drops in Black Market as Devaluation Speculation Mounts. "Hmmm, innarestin'" thought your curious Otto, and went to read it through. Here it is in full for your viewing pleasure, with my purple prose continuing afterwards. By the way, there's a good reason I've made space for the whole story, as you'll find out later:

By Matthew Walter Sept. 17 (Bloomberg) -- Venezuela's bolivar sank for a sixth straight day in black market trading as a two-month tumble in oil, the country's biggest export, fueled speculation the government will devalue the official exchange rate.

The bolivar fell 2 percent to 5.05 per dollar, leaving it down 21 percent since Sept. 5, traders said. Oil, which accounts for about 90 percent of Venezuela's exports and half of tax revenue, has dropped 17 percent this month to $95.75 a barrel amid concern a deepening U.S. financial crisis will add to a slowdown in global growth.

``There's a lot of doubt now about how solid the government's position is,'' said Tulio Bracho, a trader at Activalores Sociedad de Corretaje in Caracas. ``When oil prices fall like this, it makes the government's budget tighter and there's more speculation about a devaluation.''

Venezuelans turn to the parallel market when they can't get permission from the government to buy foreign currency at the official exchange rate of 2.15 per dollar. President Hugo Chavez imposed restrictions on currency trading amid a nationwide oil industry strike in 2003.

Chavez, emboldened by a six-year oil rally that sent prices to a record $147.27 on July 11, has ramped up spending this year, using public funds to nationalize the country's biggest cement maker, third-biggest bank and top steelmaker.

The government will likely pay $11.6 billion for the nationalizations announced so far, including last year's takeover of four heavy crude joint ventures in the country's Orinoco belt, Caracas-based consulting firm Ecoanalitica said last month.

Oil rebounded today, rising 5 percent, after its biggest two-day decline in almost four years. Crude oil futures have dropped 35 percent from the July 11 record high.

To contact the reporter on this story: Matthew Walter in Caracas at mwalter4@bloomberg.net.

1) The Venezuelan Bolivar Fuerte (VEF) sank in trading today2) The reason is the two month long decline in oil prices3) This has fueled speculation about a currency devaluation4) The VEF was trading at 5.05 to the dollar, "traders said."5) The drop in oil prices puts the Venezuelan gov't budget under pressure6) Yada yada

So let's put this little lot under the Ottoscope and see how it stands up to examination:

Otto sez; Subjective assumption, and likely untrue. As noted here on several occasions, the big drop in the VEF started in mid August when main man Moris Beracha was quoted as saying there wouldn't be any further dollar debt emissions. As soon as he said that, the VEF dropped hard. Of course the price of oil has dropped, but $90/bbl is still extemely profitable for PdVSA (and therefore Venezuela) at current prices.

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3) This has fueled speculation about a currency devaluation

Otto sez; False! I was a little taken aback by the way this was presented by Bloomie today, because I keep my ear fairly close to the ground on the subject of the VEF and up to yesterday I'd heard nothing out of the ordinary about devaluations. So as soon as I read the Bloomie note I shot off three mails to people I know in the Venezuelan bizworld. The mail asked very simply, "Any speculation about a deval going around?" The answers were a definitive "No".

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4) The VEF was trading at 5.05 to the dollar, "traders said."

Otto sez: False! This is poorly researched, lazy journalism and may mean that if "traders said" the moon was made of cheese Matthew Walter would report it.

I also asked about this with a currency exchange acquaintance. He said "Rubbish (or a much stronger Spanish word to that effect), 4.80 available all day," which means anyone wanting 5.05 for their dollars would have been doing zero business all day. The only reason Bloomberg could have quoted 5.05 is that Matthew Walter must have phoned just one trader and asked him for a quote. The trader thought "Ha!! Gringo wants to buy dollars!! I'll give him my special gringo price" and then quotes him a forex a full 5% above the going rate. Either that or Walter was just making shit up.

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5) The drop in oil prices puts the Venezuelan gov't budget under pressure

Otto sez; subjective, but almost certainly false. Most people (including me) agree that the Venezuelan budget is handily covered by oil prices at $90; $80 or below might be an issue, but not before. To add a touch of irony, crude oil shot up 6% today on very heavy futures trading.

So now we've got all that out the way, let's move on to the way that Bloomberg covered up its bullshit, panic inducing reporting after the bell. That's because suddenly the whole story has been changed. Now understand that normally when a new story with a new title comes out it's given a new URL and the old story stays with the original URL and is still available. If a story is changed under the same URL, then the title remains and "Update 1", Update 2" etc etc is added. Not this time. This time the original story that appears word-for-word above has been 'disappeared' and the title is now.....

........and much of the clearly false information and analytical nonsense has been covered up. Here's the whole story as stands after the revisionism, and we'll play 'spot the difference' underneath:

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Sept. 17 (Bloomberg) -- Venezuela's bolivar held near a seven- month low in the parallel market as a two-month tumble in oil, the country's biggest export, fueled speculation the government will devalue the official exchange rate.

The bolivar weakened as much as 2 percent today to 5.05 percent before rebounding to 4.8 per dollar at 4:20 p.m. New York time, traders said. The bolivar has fallen 19 percent since Sept. 5. Oil, which accounts for about 90 percent of Venezuela's exports and half of tax revenue, has dropped 16 percent this month to $96.61 per barrel amid concern a deepening U.S. financial crisis will add to a slowdown in global growth.

``If oil prices get closer to $80 a barrel, the government is going to have to adjust the exchange rate,'' said Asdrubal Oliveros, a director at Caracas-based consulting firm Ecoanalitica.

Venezuelans turn to the parallel market when they can't get permission from the government to buy foreign currency at the official exchange rate of 2.15 per dollar. President Hugo Chavez imposed restrictions on currency trading amid a nationwide oil industry strike in 2003.

Chavez, emboldened by a six-year oil rally that sent prices to a record $147.27 on July 11, has ramped up spending this year, using public funds to nationalize the country's biggest cement maker, third-biggest bank and top steelmaker.

The government will likely pay $11.6 billion for the nationalizations announced this year plus payments leftover from last year's takeover of four heavy crude joint ventures in the country's Orinoco belt, Ecoanalitica said last month.

November Elections

Chavez has said repeatedly he has no plans to devalue the bolivar. Yesterday he said he isn't ``alarmed'' by the recent drop in oil prices.

Oil rebounded today, rising 6 percent, after its biggest two-day decline in almost four years. Crude oil futures have dropped 34 percent from the July 11 record high.

A devaluation is unlikely before year-end because Chavez's socialist party candidates are campaigning for state and city elections scheduled for November, said Miguel Octavio, head of research at BBO Financial Services Inc. in Caracas.

``The government has a lot of money right now, but it also has a lot of obligations,'' Octavio said. ``I don't think they'll devalue this year because of the elections.''

A devaluation bolsters the government's finances because it puts more bolivars in treasury coffers for each dollar from oil exports.

Venezuela-U.S. Relations

The bolivar has also weakened in the black market in the past week because the deteriorating relationship between Chavez and the U.S., Venezuela's top trading partner, has further eroded confidence in the South American country. Chavez last week expelled the U.S. ambassador in Caracas. Venezuela is the fourth- biggest supplier of foreign crude oil to the U.S.

The financial market rout in the U.S. has pushed down the price on Venezuelan bonds, making it difficult for the government to sell dollar-denominated bonds in the local market. The sale of dollar bonds has been one of the government's main tools to provide investors access to dollar-based assets and shore up the parallel market rate, Oliveros said.

``The government is going to have to do a debt buyback before it can sell any more dollar bonds,'' Oliveros said. ``This makes you think the exchange rate is going to continue to weaken.''

To contact the reporter on this story: Matthew Walter in Caracas at mwalter4@bloomberg.net.

In story one, the title places the VEF under the spotlight. In story two, the title has been utterly changed and now makes no mention of the VEF.

In story one, the VEF is "sinking". In story two, the VEF is trading "near lows". You'll also note from this chart......

...... how seven months is a beautifully cherrypicked timeframe by looking at how the VEF has traded in 2008. The low for 2008 is a full VEF lower at 5.8.

In story one, the VEF forex is 5.05. In story two, Matthew Walter makes a lame attempt at justifying his 5.05 quote of earlier (note again that it simply didn't exist in the real world...I asked around, Bloomberg obviously didn't).

In story one, there is 'speculation' and 'a lot of doubt' about the gov't's position. In story two, Oil at $80/bbl (i.e. 20% lower than today) would be a cause for concern.

In story one,"Devaluation Speculation Mounts", In story two, "A devaluation is unlikely before year-end."

But then finally, right at the end of story two, we get the real reason for the move over the last 48 or 72 hours. As Otto reported this morning, Venezuela is going to buy back dollar debt. This means there will be less dollars available on the streets to change into VEFs and therefore the exchange rate weakened somewhat. This is normal. Or if you like, think about it in this more intuitive way; when the gov't emitted a lot of dollar debt last year the VEF parallel rate dropped, so it therefore stands to reason that if the gov't takes the same paper off the streets the exchange rate rises some.

Really this is finance 101, but it obviously went straight over the head of a professional finance journalist. Matthew Walter, his controllers and his editors got the story wrong, wrong wrong and so buried it in a sneaky and underhand way by using the same URL to create a totally revised title and story.

The only thing left to ask was whether he was deliberately try to create unease and speculation about the VEF, or whether Walter (along with his editors) is just plain ignorant about his subject matter. It's certainly extremely suspicious to get the false stuff during the trading session and the cover-up job after the bell. But either way, Bloomberg Latin America has proved once again why it has a credibility rating of zero amongst people who know what they're talking about.

A reader wrote yesterday to say he was considering a position in gold junior Dynasty Metals (DMM.to) and asked my thoughts on Ecuador exposure, the referendum, the new mining law about to be published etc. I replied in a short mail (was busy) saying that I preferred copper junior Corriente (CTQ.to) right now as a short term play.

Dynasty (DMM.to) up 15% today, Corriente flat on low volumes. WTFDIK? Of course, this is all about the flight to safety gold move today. With gold now up U$72/oz on the day and copper down 1% (and under $3.10 again...I'm glad I'm out), there's not much surprise about DMM outstripping CTQ.

Minera Andes up 9.5% and back over a buck. Yay! Cream still rises.

Fortuna Silver (FVI.v) getting some love at long last. Not surprising really, as spot silver is up over 10% right now (and that SLV is doing me fine, after all).

Brazil's Bovespa and Argentina's Merval indices both down over 5% right here right now. General carnage in anything untouched by gold and silver.

Net Servicos (NETC) is down 9.6% on big volumes and a good a good example of the Brazil selloff. Despite Brazilian reatil sales up 11% YoY, the market just doesn't want anything to do with anything today. Total panic stations, and once the dust has settled NETC is a great way to ride the rebound. Why? Because it's a growth company in a growth sector in a growth country. Stockpicking 101.

"The real answer, however, is that there won't be any $85 billion check. AIG will draw down this liquidity facility only as and when it needs to, and indeed there's a substantial chance that yada yada go see the rest here....."

The is the total Venezuela external debt burden by quarter. Bonds and short termnotes make up around U$21.7Bn of the current $56.2Bn total.(Click to enlarge)

You (probably) heard it here first, dudes and dudettes. The jungle drums tell Otto that Venezuela is going to use about U$1.5Bn of its very healthy international currency reserves (around U$37.7Bn as of last week) to buy back a chunk of sovereign debt, most probably the benchmark Global2027.

Bond and 'pagaré' (short term paper) debt, 2003 to date (click to enlarge)

This would represent about 7% of total current bonds debt and is a smart move by Venezuela because:

With the paper at around $65, they get to buy back at a considerable discount (think of it this way, sell something at $100, buy it back later at $35, say "thank you for your business, please call again")

Venezuela will avoid paying interest on that debt (yield at 13% or so right now)

It improves their debt profile (a fancy way of saying the world will like the news because they don't owe so much)

It will likely give a boost to the country risk, as people buy into Venezuela debt thinking "Well, if they do it once they may well do it again". This creates a virtuous circle and all debt paper is revalued.

The dollars in the Central Bank sit there and do nothing anyway. Of course they are important to hold, and the bigger the reserve holding the stronger the country's position. But there is a limit to the effectiveness of a large reserve holding, and for a country of under 30m people, U$37.7Bn is arguably far too much to hold. The U$100m or so that Venezuela will save in interest payments is enough reason to do this transaction.

Be prepared for those that can see no right in anything Chávez does to worry about the use of reserve dollars like this, by the way. Sour grapes of the highest order on the menu, because this is good financial housekeeping whichever way you look at it.

Also, there is a political message to this buyback (and as we all know, Chávez loves his political messages). At a time when the USA is frantically bailing out the largest of its large financial entities and effectively nationalizing them to the cost of the shareholder, Venezuela is adding value to its position by buying up cheap assets.

The advantages of a net exporting country over a net importing country? Plain to see, no?

"Otto advises: Make gold a significant part of your long term portfolio."

Suddenly, this:

That's a U$45 move in minutes....whoooooooooosh. I hope at least one reader got on before it happened. I'm now mightily regretting changing that GLD position for SLV just on the evidence of a ratio chart, but I'm sure SLV will come along for the ride, anyway.

I don't regret bailing on "the coppers" yesterday, even though my timing was maybe 4% out overall. The long term portfolio (that I don't talk about much, because it never changes and is filled with boring things like gold and high divi yield companies that pay me money every quarter) is doing just fine on this, and I'm happy to see this move.

Doesn't mean I'm jumping back in today...nor tomorrow..nor next week. Cash is a valid position right now, and while equities stay in heads-or-tails mode it'll stay like that. By the way, when I say "cash", don't assume it to be dollars. After today it won't be.

Seriously, I've been thinking about this since last night and I've come to the conclusion that I don't have a clue. It's not from any fiscal surplus, that's for sure. Brad Setser took time out from the fast-breaking news all around him yesterday to look at the July TIC data and rightly called it 'stunning'. What with the capital outflows since that month, things can only be worse, too. Setser's blog is required reading for those who want to understand the current structural weakness of the US economy, although I'd also equally recommend that you don't read it because it brought me out in a cold sweat last night thinking about the consequences.

And people don't think that Bennyboy has fired up his helicopter yet? They're mad. You guys up there are about to find out what inflation really is....so far it's just been the hors d'oeuvres, the snacky things on sticks they come round with before you sit down. You haven't even started the soup course.

Otto advises: Make gold a significant part of your long term portfolio. Preserve your capital. Samo samo I know, but the thing to do in this climate is hunker down and wait for the moment that your money can be used for real gains. The stock marktet today is nothing less than Las Vegas. Fun for the little money but not for farm-betting. Be careful out there.

We hear today that the US is withdrawing its Peace Corps spies....sorry, workers from Bolivia. This from the White House Daily Briefing today:

QUESTION: So the withdrawal of the Peace Corps volunteers has nothing to do with any reduction measure?MR. MCCORMACK: Well, we want to have a good relationship with Bolivia and the people of Bolivia, and the Peace Corps is an important part of trying to help the people of Bolivia. That’s what they’re there trying to do. But of course, we have to look at the situation on the ground, and it’s our obligation to take those steps that we think are necessary to ensure that our people are able to accomplish the long-term goals of that mission. And we believe that this was a prudent step based on the situation on the ground in Bolivia.

We hear how the US gov't recommends its citizens leave the country and is laying melodrama on with a trowel by arranging evacuation flights out of Bolivia to Peru tomorrow. (Hint to those US citizens thinking about climbing aboard; El Alto airport to Peru/Bolivia border is two hours by bus and costs U$1.50. If you're that scared make a run for it now, dudes).

We hear how today, of all days, the USA decides to put Bolivia on its narcotics blacklist. No matter that, for example, Peru produces 290MT of cocaine per year. According to the USA experts, the 120MT potential of Bolivia (whatever potential may mean) makes them far, far naughtier.

We hear from US-based press reports how today's arrest of Pando prefect and alleged brain behind last week's massacre, Leopoldo Fernández, was going to set it all off again;

"....The arrest today of opposition leader Leopoldo Fernandez, governor of the remote Amazonian province of Pando, abruptly ended efforts by the president and opposition leaders to talk about compromises after..."

And then just as the world waits for the serious fighting to start, the Evo gov't sends a piece of paper over to the autonomy rebels and says "If you want to talk, stop the shenanigans and sign this". What do they do? To the disappointment of many an editorial writer up North, they sign. Reuters reports;

The talks are scheduled to start Thursday in the city of Cochabamba (symbolically around midway between La Paz and Santa Cruz). The autonomy leaders will arrive in a position of considerable weakness, but let's hope Evo doesn't make them squirm too much (not on the first day at least) and they can sit at the same table for long enough to make some real dialogue progress.

As for the region's attitude towards the United States of America? Down here we all know that the US (ex) Ambassador to Bolivia was caught in a secret meeting with the separatist leaders. That's not party politics, that's a plain boring fact. And when the USA was caught red-handed on the diplomatic front (not to mention embarrassing scenes with US special ops forces in Santa Cruz), its show of foot-stomping has been non-stop ever since.

Unfortunately for the USA, it isn't going to get its wish for a country falling apart, no matter how hard it screams and stomps that foot. Bolivia isn't "on the brink", it's totally under the control of its legitimate and democratically elected government that has 100% support from all the region's states.

Dear reader; if you're in North America, reading this and thinking about a loved one with a US passport somewhere in Bolivia right now, let me tell you that the average Bolivian on the street has no ill-feeling towards the USA. Quite the opposite, in fact. Along with the rest of South America, the present reaction is the same all over. They're laughing at you guys. So don't worry, because apart from a few taunts of "whuss" your people are perfectly safe.

Pando chief Leopoldo "nothing to do with me, honest" Fernández is arrested and shipped out to La Paz. Nice on the spot blogging from Down South, who's in Santa Cruz right now and took photos of the local racists actually rallying to support the mass murderer when news of his arrest got out. Impressive stuff. Go see his blog, that's an order.

Abiding in Bolivia knocks one straight out the park with this post that goes into the details of how it all happened with plenty of source material on hand, too. Essential reading for those who want to understand how all this came to pass.

On a personal note, I've been pleasantly surprised about the number of people accessing last night's post that translated The Moneda Declaration. It seems there are still people out there who care for things like rule of law, decency and true democracy; good for you.

Even the LatAm right wing is disgusted by the Santa Cruz fascists. This is what President Alvaro Uribe had to say after last night's historic declaration. I have to say that Uribe has gone up in my estimation in the 72 hours.

Uribe sez:"(I support the gov't of Evo Morales) in the same way that Colombia always asks to condemn the terrorist violence that affects our country. It is very important that all South American countries come together to defend constitutional order and democracy in Bolivia that is made flesh in its President Evo Morales, who has just been ratified by a wide margin in an unquestionable democratic process."

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